Using either the dividend-discount model

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Microsoft has a beta estimate (long term average) of 0.95. This not what is expected since high technology companies usually have a high risk and have betas of more than 1. Verizon Communications, on the other hand, has a beta (long term average) of 0.50. This is expected since communication industry is not posed with many risks because these are utilities that consumers cannot do without.

Using the CAPM, please calculate the cost of equity (rE) of Microsoft and Verizon. You can assume a market risk premium of 5.50%. Once you've calculated rE, then calculate both firm's intrinsic stock price using either the Dividend-Discount Model or the Constant Dividend Growth Model.

Reference no: EM13929968

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